A common question when it comes to valuing a real estate asset is what type of value do I need? It is a common misconception that a certified appraisal and a broker price opinion, also known as a market analysis, are the same thing. These terms are sometimes used interchangeably, and while they do have a lot of similarities, they are both very different.
Broker Price Opinion (aka Market Analysis)
Preparer: Real Estate Broker
Common Uses: Estimate value on a real estate asset for the purpose of a real estate sale or setting a listing price on a property.
Characteristics: Some characteristics of a Broker Price Opinion is that a range of value is concluded, normally only a simplified sales comparison approach is used, and the report is normally only a few pages.
Pros: There are many pros to this form of opinion of value. Normally a market analysis is cheaper than a certified appraisal because of the extent of research involved in the market analysis. Another pro is that it is very simple to understand and normally the report is only a few pages long. There are also more qualified brokers to complete a broker price opinion unlike a certified appraisal that requires a board-certified appraiser.
Cons: One of the biggest cons to the broker price opinion or market analysis is that the depth of forming an opinion of value uses less analysis than a certified appraisal. A simplified sales comparison approach is used to form an opinion of value unlike a certified appraisal that uses three different approaches to value. Normally this simplified method is enough to get an accurate opinion of value for establishing a sale or listing price for a sale of real estate assets. Another con is that a market analysis is not certified and is normally not suitable for more advanced jobs such as establishing collateral for banks or values for government entities.
Certified Appraisal
Preparer: State Board Certified Appraiser
Common Uses: Estimate value for collateral, litigation purposes, government entities, and IRS uses.
Characteristics: Three approaches to value are used: Cost Approach, Sales Comparison Approach, and Income Approach. Other characteristics would include very in depth analysis of the asset and comparables being used and appraised.
Pros: Like a broker price opinion, there are many pros for certified appraisals. One pro is that a certified appraisal is completed by a board certified appraiser and their findings hold weight with banks, government entities, and in a court of law. Because appraisals use three approaches to value, a value is estimated with cost approach breaking down certain components of improvements and land uses, sales comparison approach comparing the subject property to comparables and adjusting up and down for similarities, and finally the income approach were a value is estimated using the income of the asset.
Cons: Certified appraisals are normally more expensive than broker price opinions. The timeline to have a certified appraisal completed can normally be longer due to the demand and pool of appraisers qualified to complete the project.
In conclusion, you can see that both broker price opinions and certified appraisals have their place in the real estate world. It is always a good idea to speak with the professionals and decide what route is best for you and your situation.
NextAg Appraisal & Realty is both a licensed real estate brokerage and certified appraiser. We would be more than happy to consult with you and see what product best fits your situation.